Active Investing Is ‘Biggest Scam on the Planet,’ Says Nuclear Pharmacist Turned RIA

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In his first career, Mark Hebner was a nuclear pharmacist, the co-founder and CEO of a radiopharmaceuticals company. For his second and present career, he chose registered investment advisor specializing in online investing with index funds.

Those two professions have zero in common — but not when it comes to career strategy: With both, the marketing-minded Hebner pioneered a brand-new, uncharted field.

Indeed, the founder and president of Index Fund Advisors, launched in 1999, is smart about capitalizing on what he spots as outsize opportunities.

To wit, the nuclear pharmacy career panned out so well he retired at 32 with $6 million only 10 years after co-founding the company, as he tells ThinkAdvisor in an interview.

Hebner, who credits himself with the idea of robo-advisor, invests clients’ assets exclusively in index funds, using an approach based on indexing models designed by celebrated finance professors Eugene Fama and Kenneth French.

IFA’s portfolios comprise funds sponsored chiefly by Dimensional Fund Advisors, as well as Vanguard, Fidelity and BlackRock.

Managing assets of $4.7 billion, the firm has about 2,300 high-net-worth clients and a substantial business in 401(k) and 403(b) plans.

In the interview, Hebner sharply dismisses active investing as “the biggest scam on the planet” and labels active managers “lucky coin flippers.”  

In fact, he’s gone so far as to write a book, “Index Funds: The 12-Step Recovery Program for Active Investors” (Rev. 2012). In the interview, he tells why they should make that climb to “Tradeless Nirvana,” as he puts it.

Hebner also discusses what motivated him to leave retirement after some 13 years to enter the financial services industry.

In Career No. 1, he and his partner built their nuclear medicine business founded right out of college — to diagnose and treat diseases — into a publicly traded company. Later, Syncor International was acquired by Cardinal Health for about $850 million.

Today, Hebner markets online to drive potential clients to his firm’s website, where they find available 193 educational videos, 175 articles and 92 charts touting indexing.

A financial markets history buff, he has a personal collection of 2,576 books on the subject. One tome dates to 1648; another, “The Great Mirror Folly,” written in 1720, is about the first financial crisis and worth $10,000, he says.

ThinkAdvisor recently held a phone interview with Hebner, who was speaking from Irvine, Calif., where his firm is based. The indexing authority stated proudly: “I was never a stockbroker. I was never an active manger. I started this [business] the right way from the beginning.”

Here are highlights of our interview:

THINKADVISOR: You frame your book, “Index Funds: The 12-Step Program for Active Investors,” as “the treatment choice for wayward investors.” Why did you make that the theme?

MARK HEBNER: The stock market is a gambling casino unlike any other in the world; it’s like going to the race track and betting. I saw research saying that investing was an endorphin-generating activity, and that led me to the New Jersey Alcoholics Anonymous website with its section on stock market gambling. I thought, “Perfect, I’ll come up with my own version of the 12 Steps.”

So, then, are investment advisors enablers?

They’re addicted themselves. The enablers are the clients who put up money so they can continue to gamble. They’re funding these people’s addictions.

What’s your take on active managers’ performance?

Active investing is literally the biggest scam on the planet. People pay other people to gamble with their money in the market and try to beat a risk-appropriate benchmark. You don’t see consistent outperformance. You see random patterns, much like people flipping coins. What you basically see are lucky coin flippers.

Before you went into the financial services industry, you were a nuclear pharmacist. That seems to be at the opposite end of the spectrum! What prompted you to work in the field of radiopharmaceuticals?